House prices could fall in the second half of the year if house lending continues to tumble, one property expert has predicted.
The forecast comes amidst more evidence the market is cooling, with auction clearance rates dropping for a second consecutive week as would-be owners back away due to rising interest rates.
SQM Research founder Louis Christopher says the market could see prices fall if demand for finance remains thin.
“Some of the heat has been coming out of the market since about April. We’ve been noticing a decreasing trend in adjusted auction clearance rates, and taking into account other types of results, the market is slowing.”
“I would generally agree with some of the comments from RP Data in this case, where we see the middle and lower ends of the market slipping faster than the upper market, where there is still some upward pressure.”
Last month finance figures hit a nine-year low, with finance for construction of new houses dropping by 7.3% to $5.8 billion. Additionally, first home buyers accounted for just 16.1% of all finance in March, compared to 18.1% in February.
Until now, it was expected the market would experience more moderated growth in the single digits. But Christopher says the result could be even worse.
“The housing finance approvals are a very good indicator of what is happening in housing demand, and we are seeing a huge decline right now at nine-year lows.”
“It’s important to note that one set of numbers doesn’t mean there’s going to be a correction. But if housing finance levels stay at the same level for awhile, then we could see some pricing falls in the second half of the year.”
David Airey, president of the Real Estate Institute of Australia, isn’t so sure prices could fall but does believe the market will moderate over the next six months.
“This is like an alignment of the planets in that decreases in finance, tightening of lending criteria and interest rate rises are all causing buyers to think over their attitudes and ability to purchase.”
“We would not think there would be a reduction in prices, but we think this is taking a lot of the heat out of the market. We’re looking at more of a flat period for pricing than anything else.”
However, not everyone in the industry is so gloomy. Real Estate Institute of Victoria chief executive Enzo Raimondo said this week’s 75% clearance rate in Melbourne was “very good… given the unseasonably high number of auctions this May.”
“Stock levels are so high that there have only been three months with more auctions, October 2007, December 2007 and 2009, all in spring when around 800-900 auctions over the weekend are a regular feature.”
“In previous years, 2008 being a good example, stock levels increased in autumn and winter due to confidence from vendors, the clearance rate fell to the mid-60s.”
Melbourne recorded a total of 701 auctions over the weekend, of which 529 sold and 172 were passed in, resulting in a clearance rate of 75%. The same weekend last year saw 451 auctions with an 83% clearance rate.
Additionally, Raimondo said the REIV is expecting about 2,600 auctions between now and the Queen’s birthday weekend in three weeks.
In Sydney, 209 properties were sold out of 279 on the market, result in a clearance rate of 71% and an average price of $179 million.
Brisbane recorded just six property sales with a clearance rate of 29%, while Adelaide saw 14 sales out of 27 on the market, indicating a clearance rate of 50% and a total sale result of $6.9 million.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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